How Do Financing Constraints Affect Firms' Equity Volatility?

65 Pages Posted: 1 Mar 2014 Last revised: 29 Aug 2017

See all articles by Daniel R. Carvalho

Daniel R. Carvalho

Indiana University - Kelley School of Business

Date Written: April 10, 2017

Abstract

Theory suggests that financing frictions can have significant implications for firms’ equity volatility by shaping their exposure to economic risks. This paper provides evidence that an important determinant of higher equity volatility among R&D-intensive firms is fewer financing constraints on firms’ ability to access growth options. I provide evidence for this effect by studying how persistent shocks to the value of firms’ tangible assets (real estate) affect their subsequent equity volatility. The analysis addresses concerns about the identification of these balance sheet effects and shows that these effects are consistent with broader patterns on the equity volatility of R&D-intensive firms.

Keywords: Firm Equity Volatility, Growth Options, Financing Frictions

JEL Classification: G30, G32

Suggested Citation

Carvalho, Daniel R., How Do Financing Constraints Affect Firms' Equity Volatility? (April 10, 2017). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2402446 or http://dx.doi.org/10.2139/ssrn.2402446

Daniel R. Carvalho (Contact Author)

Indiana University - Kelley School of Business ( email )

Bloomington, IN 47405
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
441
Abstract Views
1,892
rank
82,490
PlumX Metrics